Proactive Investors - Diageo (LON:DGE) boosted US spirits growth in the second half of its financial year data from Nielsen and NABCA suggests, notes Deutsche Bank (ETR:DBKGn).
But most of this growth year-to-date has been in flavour extensions, adds the bank. which historically has proved to be very short-lived with a risk that the recent acceleration can’t be sustained.
UBS chips in that Diageo’s tequila brands are also facing a structural downtrading in the Blanco premium sector.
Blanco accounts for around half of the tequila market with the super-premium end, US$50 a bottle or more, half of that again.
Super premium is now declining after seeing 17% annual average growth between 2020-23, while premium ($25-30) has seen growth slow.
“We think this downtrading could be structural, particularly when seen in context to the historical evolution of the Vodka category,” says the Swiss bank.
As a parallel, UBS points to the 2000s Vodka boom fuelled by premium brands.
As the category's growth slowed and consumers became more knowledgeable about vodka, premiumisation ended and "the category's low barriers to entry and limited taste differentiation were exposed”
Diageo's tequila portfolio amounts to 12% group sales and 30% in the US with the the super-premium Blanco variants Casamigos and Don Julio accounting for 40% of the total franchise.
“Such a drag on the portfolio makes it harder for Diageo to grow its portfolio in line with the US industry.”
Sell Diageo is the conclusion of both UBS and Deutsche Bank (tp 2,400p).
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